Strong GST Collections Challenge Fears of Revenue Declines

Gross Goods and Services Tax (GST) collections in India have shown notable strength, contradicting widespread fears of significant revenue declines. According to a report from the State Bank of India (SBI), the collections for October 25, 2023, which represent returns filed in September, reached Rs 1.96 lakh crore, a rise of 4.6 percent compared to the previous year. This positive trend counters concerns expressed by various states regarding a potential drop in GST revenue following the rationalisation process.

Analysis of GST Trends

The latest data reveals that while gross domestic collections increased by 2 percent year-on-year, the revenue from imports saw an even more substantial rise of 12.8 percent. Additionally, the number of e-way bills generated in September hit a record high of 13.2 crore, indicating robust commercial activity.

The report highlights a significant growth in refund processes as well. Total refunds for October amounted to Rs 26,934 crore, marking an impressive 39.6 percent increase year-on-year. This improvement in refund processing is viewed as a sign of enhanced ease in business operations, contributing to overall market confidence.

Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI, stated, “Assuming that states experience similar gains and losses post rationalisation as observed in October, we project GST revenue for FY26. This indicates that most states appear to be net gainers following GST rationalisation.”

Projected Revenue Implications

Despite the Union government’s estimate of a potential revenue foregone due to GST rate rationalisation being around Rs 48,000 crore, various research agencies had forecasted far more severe losses. Some predictions suggested losses could reach an astonishing Rs 10 lakh crore.

However, historical analysis suggests a different narrative. Previous rounds of GST rate adjustments, specifically those in July 2018 and October 2019, indicate that while there may be short-term revenue fluctuations, the long-term outlook tends to favour stronger collections. The report from SBI underscores this perspective, stating that rationalisation typically leads to a temporary adjustment phase that is followed by enhanced revenue inflows.

This current data suggests that the fears surrounding GST collections may be overstated, reinforcing the notion that effective tax policy can sustain and even enhance revenue generation. As states prepare for the fiscal year ahead, the evidence points toward a more optimistic revenue outlook post-rationalisation.